The article on Branch Accounting describes the methods used by the bank to record the way in which depositors' accounts were maintained up until the early 1970s, ie a mixture of hand and mechanised systems that were labour intensive. These systems became increasingly under pressure as the ownership of bank accounts widened, and in particular, as the popularity of money transmission and cheque accounts grew. As detailed in the article on Current Accounts Department, by 1972 the annual number of cheques cleared had exceeded 250,000.

During the 1960s, the benefits that would accrue to many commercial concerns from using computers for accounting and other recording systems were becoming apparent. The benefit to organisations that handled huge volumes of transactions, such as banks, was attractive not only because existing systems would be unable to cope with forecast volumes of future business, but because of the fact that the capital expenditure involved would soon be repaid in lower staffing costs.

However, at this stage in their development, computers were very large machines, and by comparison with today's equipment had limited processing capacity. Computerisation in banking in the 1960s was therefore restricted to specific tasks such as interpreting machine-readable characters on cheques to enable them to be sorted automatically. But the rapid growth in computer technology meant that by the 1970s, the machines to handle vast numbers of accounts and transactions would become available.

Savings banks, with their high numbers of passbook accounts, and the potential for correspondingly large numbers of current accounts, were an obvious major benefactor from computerisation of their branch accounting systems. A key problem, however, was that of funding. By 1966, there were over 1,400 savings bank branches; many of them part of small savings banks with little in the way of capital reserves. In the prior twenty years, this capital funding problem (ie lack of funds to establish new branches) was alleviated by a Mutual Assistance Scheme whereby the richer banks had contributed about £4 million to the poorer ones. The Trustee Savings Banks Act, 1968, empowered the National Debt Commissioners to make loans up to £10 million for approved capital expenditure to assist TSBs who were working on schemes to introduce computers within the next few years. The BMB was able to fund its computerisation programme from its own resources.

An early indication that the BMB management were thinking about the possible computerisation of customer accounts was given in about 1966/67 when two members of staff (John Walker and David Smith) were asked if they would "show an interest" in the possibility of such a project. However, no time was allocated, nor specific tasks allotted, to pursue this process and the two members of staff continued with their existing jobs within the branch network.

In 1968 John Walker and David Smith attended the Eighteenth Vocational School organised by the Savings Banks Institute. This was held at Hatfield College in Durham University in September of that year and was on the subject of computerisation. The Bank arranged this attendance, and the lecturers were senior staff from the TSB movement who were supported by some senior employees from Burroughs Machines Ltd. There were 66 students listed in the programme, from TSBs across the country.

In 1969/70 the Bank arranged for the National Data Processing Service (NDPS) to undertake a Feasibility Study into the computerisation of the Bank, and John Walker and David Smith were seconded from their Branch Manager positions to work with NDPS for three months. The initial part of the project was undertaken at the London offices of NDPS in preparation for a six week period of 'field work', gathering statistics at the bank and undertaking transaction timings etc within a selection of branches before returning to London in order to assist in the drafting of the final report. It is understood that the report recommended a mixed system whereby the busiest branches would operate an On Line Real Time (OLRT) system with the remaining branches using an Off Line system whereby transactions would be processed overnight away from the branch.

The highly advanced, and technically difficult, OLRT system (whereby transactions are posted immediately to a centralised computer, and the resulting account balance is immediately available to other terminals linked to the computer) was particularly suitable to savings banks with their passbook based accounts, and close proximity of branches in large towns and cities. All the commercial banks, however, were pursuing the simpler and more robust option of Off Line systems.

The BMB's management subsequently decided that all branches should operate an On Line Real Time computer system, and that this should be achieved by joining those TSBs who were already advanced in such a project. The Annual Report for the Year Ending March 31st 1971 included the following paragraphs: The Bank is proposing to join the West Midlands and South Wales Computer Consortium of Trustee Savings Banks which will provide an 'On-Line Real-Time' computer system for accounting, costing and management services.
It is considered that this in due time will enable the Bank more efficiently to deal with an increased volume of work whilst preserving the same high standard of service.

At that same date, the bank added £400,000 to the existing £100,000 in its Reserve for Repairs and Rebuilding of Branches to make a total of £500,000, and renamed it Development Reserve. The 1972 Annual Report states that The Bank has joined the West Midlands and South Wales Computer Consortium of Trustee Savings Banks which will provide an 'On-Line Real-Time' computer system at all branches. It is anticipated that the take-on of Branches will commence during the second half of 1973.

In the same Annual Report, the first charge for computer expenses was detailed under the heading of Computer Revenue Expenses:

Computer Revenue Expenses charged in this year's accounts amount to £121,071 before the transfer of £80,000 from Development Reserve and may be divided on the following basis (£):-
 
     (a) Certain expenditure incurred prior to the Bank's joining the Consortium
           which it was agreed to pay as part of the terms of entry…….......................………….........………. 39,933
     (b) The proportion laid down in the Agreement with the Consortium of that
           body's revenue expenditure for the year 21st November 1970 to 20th
           November 1971……………………………………………………………………………..………… 30,583
     (c) The agreed proportion of the revised estimated expenditure for the year
           21st November 1971 to the 20th November 1972 taken pro rata to 31st March 1972……...…. 50,555
 
                                 Total.................................................................................................................................£121,071
 
In these expenses there is charged depreciation of computer equipment based on the method prescribed by the National Debt Office. If this had been calculated in equal annual amounts over a useful working life of ten years, the Bank's share would have been increased by £8,295.

 

The Annual Report also contained the following two notes:
Loan to West Midlands and South Wales Trustee Savings Banks Computer Consortium (£402,216)
Under its agreement with the Consortium the Bank can be called upon to make further capital advances, on which interest will be received. These advances should not be substantial as most of the computer equipment for the Consortium has already been purchased.

 

 

See: Computer Financing

 

The six TSBs who were the constituent banks of this consortium were: West Midlands; South West Wales; South Wales East; Coventry; Walsall; and Wolverhampton. Together with the BMB, these seven banks were to utilise an ICL 4/70 computer operating from a centre specially built for the purpose in Kidderminster, Worcestershire.

The number of branches and approximate number of accounts to be taken-on to this centre were:

     West Midlands - 35 (343,000)
     South West Wales - 18 (152,000)
     South Wales East - 16 (95,000)
     Coventry - 12 (139,000)
     Walsall - 10 (140,000)
     Wolverhampton - 16 (171,000)
     Birmingham - 71 (490,000)
 
     Total - 178 (1,530,000)

 

This consortium's operating system was to be based on the computer system being developed by TSB (Altrincham) computer Services - TSB(A)CS - based in Altrincham, Cheshire, which in addition to the West Midlands Consortium, was also developing the same system for TSB consortia based on computer centres operating from sites in Wythenshawe, Manchester (125 branches; 1,176,000 accounts), Bootle (204; 1,669,000), and York (383; 3,264,000 but only 83 branches; 1,253,000 accounts On Line Real Time), to serve TSBs located in those areas. TSB(A)CS employed computer professionals (eg Programmers and System Analysts etc) who were supported by bank staff seconded to the group for varying periods of time.

In August 1971, John Walker and David Smith were appointed to work full-time with Alban Clemons, in the Broad Street Head Office, on the implementation of the On Line Real Time computer system throughout the Bank. Alban Clemons was the Bank's Development Officer, responsible for all aspects of branch development and was to lead the project.

In November 1971, John Walker and David Smith were seconded to work with TSB(A)CS at their offices in Altrincham to ensure that the computer system, already well advanced, to be used by the TSBs, was appropriately adapted to meet the requirements of BMB. This meant that, under the guidance and supervision of the TSB(A)CS permanent staff they had to rewrite those areas of the System Specification Manuals that needed to be adapted to meet the Bank's requirements. The amended system specifications were then passed to the computer programmers for incorporation into the computer programs used to process TSB work. The main differences that needed to be addressed were:

 

    (a) Two Savings Departments at BMB; only one at TSB;
    (b) BMB month-end was last day of the calendar month; TSB's was 20th of the month;
    (c) BMB year-end was March 31st; TSB year-end was November 20th;
    (d) Interest calculation at month-end differed to that used by TSB. (The BMB system was more generous, eg, withdrawals made on

          the last day of the month did not suffer loss of interest on the whole month)

 

At this time, TSBs did not offer Mortgage facilities to their customers, so no attempt was made to incorporate the BMB Mortgage Department into this computer system. (At a later date, TSBs purchased and then adapted the mortgage computer system being used by Stafford Railway Building Society.)

The changes made to the TSB version of the system had to be tested by the establishment of a database of 'test' transactions, which had to be passed through all the various programs and validated against predicted test results.

The resultant amended programs were for processing both TSB and BMB work so any future changes had to incorporate the requirements of both TSBs and BMB.

The period of secondment was initially expected to be four or five months, but the staff concerned were eventually returned to the bank at the end of 1972, with other BMB staff being seconded to complete system testing work etc, thereafter.

In order that the new computer system could identify individual account records, all customer accounts (except mortgages) held at all branches had to be renumbered using an 8-digit account number system consisting of a 6-digit 'stem' followed by a Department Code and then a check digit which was arithmetically validated using the whole of the account number plus the Bank/Branch Sort Code (see Numbering of Accounts and Branch Sort Codes).

Both Savings Departments were held on Department Code '1' but were separately identified by No 1 Department accounts being allocated higher range stems, whilst No 2 Department accounts were allocated lower range stems. Investment Department accounts were identified using Department Code '5' and, where appropriate, used the same 6-digit stem allocated to the customer's No 1 Department account with a correspondingly different check digit after the Department Code. Current Accounts were identified using Department Code '6' linking to customers Savings and Investment Accounts, where appropriate, by the use of the same 6-digit stem etc (see Account Types).

The Bank's Non-Personal Accounts (NPAs) at both bank and branch level were allocated stem numbers at the bottom of the stem range, and used Department Code 9. NPAs, as their names suggests, were used to handle all transactions to non-customer accounts, eg income and expenditure accounts; assets and liabilities; suspense accounts, etc. The format of NPA account numbers differed slightly from those used for customers' accounts. As it was essential that the basic account number was the same at every branch, there was no check digit arithmetical check needed.

All customers' existing accounts were renumbered during 1972 in preparation for computer implementation, and this involved not only linking customers' various accounts, but noting all other customer records, customers' passbooks, and advising originators of Direct Transfer Schemes (DTS) and salary credits destined for customer accounts.

New passbooks had to be issued to depositors, to replace the existing hard-cover, bound books that had been used since the Bank was established - 500,000 computer-type passbooks were ordered from Copeland Chatterson & Co. The new passbooks consisted of four parts: a coloured plastic cover with clear flaps on the inside front and rear; a 'book' section that was inserted into the cover by placing its first and last pages into the flaps; a front 'insert' that went into the front flap; and a rear 'insert' that went into the rear flap. The front insert was used to record a specimen of the customer's signature, which could only be viewed using an infra-red light. The rear insert contained information on conditions relevant to the account, and interpretations of the code abbreviations used in passbook entries. On the front page of the book section, a space was provided for the account number to be inserted.

Later issues of passbooks were 'one-piece', with the book section bound into a card cover. In both versions, the computer terminal printed entries across an opened double page, starting with pages numbered 2 and 3. Each of the book's seven double pages had 20 numbered lines and six columns that were headed: DATE; CODE; DEPOSIT; WITHDRAWAL; BALANCE; TELLER.

All branches had to undergo alterations, some considerably more than others, in order to accommodate the computer equipment that needed to be installed. This included alterations to branch counters to accommodate the large Olivetti terminals which, in addition to the alpha/numeric keyboard used for inputting transactions, also printed transactions directly into customer's passbooks and the relevant transaction slip, and also had a facility to produce paper-tape for any transactions dealt with when the computer system was not available. Installation of modems and high-speed lines linking branches to the Main Frame Computer at the Kidderminster Computer Centre also had to be arranged, and all these changes, together with staff training etc, had to be organised to meet the scheduled take-on date of branches onto the computer system.

All bank staff had to be trained in the use of the new computer terminals, and to be familiar with the operation of the computer system before a branch was taken-on to the system. The release of staff to undertake this training was organised by District/Area Managers and Personnel Department. Staff were trained at the Consortium Training Centre, which had been established as a separate 'Training Branch' at Bromsgrove in Worcestershire, to deal with the training of all staff from the Kidderminster constituent banks. The Training Branch was also used (at weekends) to help with the actual take-on of branches to the computer system.

Branch cashiers attended a one-week course at the Training Centre, whilst Branch Managers and supervisory staff had to undertake an additional course.

The Bank's Annual Report dated August 1973 stated that: 'On-Line Real-Time' computer accounting will commence in the autumn and branches will be taken-on in steady progression. This will relieve managers and staff of many of the duller aspects of their work, leaving them more time to devote to customers. A faster and more efficient counter system will be given by cashiers.

The Accounts also reported that additional advances of £134,979 had been made to the Computer Consortium, but repayments against the original loan amounting to £84,411 had been received; the outstanding balance on the loan was therefore now £452,784. The £430,000 estimated the previous year to be paid in 1972/73 for computer equipment did not take place as the equipment suppliers were unable to satisfy the Bank's orders. The cost of the equipment was now estimated to be £470,000. In addition, the modifications required at branches for the installation of the equipment was estimated to cost an additional £100,000. The balance of the Development Reserve was increased to £600,000.

The 1974 Accounts (dated August 1974) reported that: The first accounts have now been taken-on to the computer system and the experience gained indicates that substantial progress will be made with the take-on programme by the end of the current year. In 1973/74 approximately one-third of the initial computer equipment required by the Bank was delivered at a cost of £159,250.

The take-on process was undertaken over a weekend with the branch ledger records being physically transported to either the Training Centre or the Kidderminster Computer Centre, immediately after cashiers had balanced following the close of business on the Friday of the designated weekend. The details needed were taken from the ledger cards and punched into paper-tape using the Olivetti terminals at these two locations. The paper-tape and ledger cards were then brought together at the Computer Centre, where the paper-tape was fed into the computer in order to establish a full computer file of customer accounts. The results from the process were verified (eg agreeing total balances on each of the branch's Departments) before the ledger cards, together with appropriate computer printouts, were taken back to the branch in readiness for opening to the public on the following Monday morning, when the branch would be operating using the computer system.

Several branches could be taken-on over a weekend, and the work would be supported by volunteer Bank staff from across the branch network, who would work in shifts through Friday night and Saturday, until the work was completed when the branch accounts balanced with the information held on the ledger cards. By the time of the take-on of BMB branches (Administration Department, followed by Handsworth were the first), this process was a well-practised routine, as by this date, the majority of TSB branches in the consortium had already been taken-on due to their banks' earlier involvement in the computerisation project.

The take-on of BMB branches was delayed for about six months during the winter of 1973/1974, due to industrial action which caused disruption to power supplies to domestic, commercial, and industrial users. By March 31st 1975, 64 branches with a total of 445,000 accounts had been taken-on to the system, and the Bank was on target to complete all take-ons (except for Solihull branch, whose premises were being modernised) by the end of calendar 1975. £217,600 was spent on computer and other equipment during 1974/75.

The take-on to computer accounting was completed on March 19th 1976 with the transfer of Solihull branch to the system. In general, the very advanced On Line Real Time system worked extremely well, but system 'crashes' were not infrequent. Customers and branch staff found these periods 'when the system was down' equally frustrating. The back-up procedure when the system was not available included reference to paper reports (that were delivered overnight by courier) showing account balances, and the input of transactions to paper-tape, instead of directly to the computer at Kidderminster.

Basically, each individual transaction input to the computer generated an accounting double-entry. A deposit automatically produced a credit (to the depositor's account) and a debit (increasing the cashier's cash holding). A withdrawal transaction produced the opposite: debit to the depositor's account; credit decreasing the cash holding. As well as immediately updating the customer's account, the computer system aggregated and summarised all the individual transactions, so as to provide such close-of-business information as an individual cashier's cash holding; the branch's revised Departmental balances; overall bank totals reported directly to Head Office Administration Department.

As occurred prior to computerisation, a depositor would complete a transaction slip for his/her deposit or withdrawal. The cashier no longer had to refer to a ledger account, and the customer's signature was available in the passbook. The cashier input the transaction type; the account number; the transaction amount; and the passbook balance. The computer system verified the accuracy of the account number input by the arithmetical check referred to above, and as a double check that the transaction was going to the correct account, verified the passbook balance (which, because of 'Not In Pass Book' transactions) might be different from the account balance. The passbook and transaction slip were inserted into the Olivetti terminal, and the terminal's printer updated the passbook, and printed a record of the transaction on both the slip and an audit roll. The latter records provided both an immediately available audit trail, and a means of assistance in identifying cash handling errors.

As each branch was taken-on to the system, it no longer had to send a Weekly Cash Return to Head Office. The Head Office Administration Department, however, had to amalgamate figures still returned by branches not yet taken-on, with the totals supplied by the computer system for all computerised branches.

An advantage of being the last bank to be taken-on to the computer system was the ability to benefit from the experiences of the TSBs taken-on at earlier dates. This was particularly relevant to the accounting for non-branch transactions, where there was no centralised training available - each individual bank being left to devise its own system. It soon became apparent that little thought had been given to this aspect of the computerisation of banks' records. In fact, the computer system that had been developed was almost entirely geared to accounting for customer records. There was little provision for the 'costing and management services' (other than numbers of transactions) that were promised in the Bank's 1971 Annual Report, and there was no system of Financial Control (ie the verification that the Bank's overall accounts were in balance).

However, the Bank's financial control was maintained by taking-on all bank level non-personal account (NPA) balances prior to any branch take-on. Thus, all the ledger accounts maintained centrally by Head Office (investments; fixed assets; sundry debtors and other sundry assets; sundry creditors and other sundry liabilities; suspense accounts; income and expenditure accounts; etc) were taken-on to the system. This was done at varying levels of detail, eg summary accounts were used for investments, and manual records maintained for the individual investments. All these NPAs were the responsibility of the Bank's Administration Department (prior to computerisation, known as the Accounts Department) which had the Branch Sort Code: 77-85-00.

Thus, by combining the Administration NPA balances with the branch level balances for customer accounts, cash holdings, and NPAs, an overall bank level Trial Balance could be achieved.

In addition to eliminating basic reporting of activity to Head Office, the computer system also eliminated one of the branch network's major tasks: the Annual Balance. Not only were all interest calculations now made by the computer, but the system produced all the necessary data and reports. For the first time in the Bank's history, it was no longer necessary to close branches on the last day of the financial year.

 

 

 

(This article was written by David Smith and David Parkes)